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Sessional Research Event - Saving for Retirement: Rules of Thumb

Monday 20 May 2019 17:00 - 19:00

Spaces available

How much does the average person need to save over a full working life to provide a decent retirement income? We call this the Lifetime Pension Contribution (LPC) and have attempted to quantify it. Discussing whether we have got it right is a valuable debate, touching on the anticipated level of retirement benefits, the required fund at retirement to achieve those benefits and how our conclusions fit with automatic enrolment. It is also closely related to the PLSA’s development of Retirement Income Targets.

Our LPC calculation highlights the high cost of pension provision in a DC world, and we consider how this might be addressed, through a more efficient decumulation market and utilising some risk sharing. We also consider whether a modest rise in long term interest rates should be anticipated when calculating the LPC.

The LPC is a rule of thumb, and we have developed others to assist people in their pension planning. For example, to estimate the target pension and benchmark accumulated DC fund in a simple way from the current annual contribution.

How useful would our rules of thumb be, and might there be an independently branded smartphone app to help apply them? Promoting the LPC in the national media might help cement it in the general psyche, alongside well-known statistics such as the FTSE100.

Finally, we consider if further rules of thumb can be developed to help people make decisions about balancing their lifetime consumption. For example, seeking to provide a predictable retirement incomes can result in volatile pre-retirement income due to the need to adjust contributions. Alternatively, or in addition, a change in retirement income target or retirement age could be considered.